Pressure builds on Bailey to restyle Burberry's finances

LONDON (Reuters) - When Christopher Bailey stepped into the top job at Burberry (BRBY.L) there were many who questioned whether the golden boy of British fashion could cope with being chief creative and chief executive officer at the same time.

Twenty months on and with the share price languishing at three-year lows, the 44-year-old still has a point to prove and is now facing a slowdown in the global luxury market that could pose the biggest challenge to his executive career.

Bailey has largely left his finance chief Carol Fairweather to discuss the finer technical details with investors, analysts and the press, in much the same way as his predecessor Angela Ahrendts did. He has also stuck closely to Ahrendts’ strategy.

Analysts are now keen to hear how Bailey sees the future.

“He has to step up and he has to say: That was the agenda, but this is my agenda – this is what I stand for,” said Luca Solca, Head of Luxury Goods at Exane BNP Paribas.

Credited with helping transform the 160-year-old Burberry from an ailing heritage brand into a global luxury powerhouse, his dual role could come under renewed scrutiny when Burberry releases the key Christmas quarterly trading update on Thursday.

Burberry, whose trench coats and cashmere scarves took Asia by storm, reported a sharp sales slowdown in Hong Kong and China in October, leading the FTSE 100 company to miss sales growth forecasts and warn of an increasingly challenging environment for luxury goods.

Although it said it had seen signs of recovery in November, its shares are trading at more than three-year lows, giving it a market value of 4.9 billion pounds, 43 percent lower than its peak in February last year.

TURBULENT TIMES

Other luxury groups that expanded rapidly in mainland China such as Gucci (PRTP.PA) and LVMH (LVMH.PA) have also suffered from the economic uncertainty there, and violent stock market gyrations so far this year will not have helped.

Hong Kong and Chinese shoppers account for between 30 and 40 percent of Burberry’s global revenue.

While some bigger companies may be able to raise prices on their luxury goods to help weather difficult markets, Burberry’s positioning as a more inclusive brand means it will have to carefully think through how to navigate the slowdown.

Liberum Analyst Tom Gadsby said the bulk of Burberry’s revenue comes from regions which are seeing the biggest slowdown in growth - Asia Pacific and the Americas.

“The main concern is what was a strength has become a weakness,” he said. “They have very good global coverage but that does mean that two-thirds of their sales are in areas of the market that are going backwards.”

According to market data, hedge funds are betting that things will get worse. The amount of shares being shorted - reflecting a belief that the stock price will fall - has risen sharply ahead of the trading update.

That will give Bailey, who has seen his designer peers exit from luxury fashion houses Christian Dior, Balenciaga and Lanvin in recent weeks, more work than most creative directors in the industry.

HIGH REGARD

One of the best paid CEOs in Britain, Bailey remains a hugely popular figure in the fashion industry.

He comes from Yorkshire, northern England, where his mother dressed the windows of Britain’s biggest retailer Marks & Spencer (MKS.L).

Despite keeping a low profile, he attracts leading fashion editors and celebrities to Burberry’s fashion shows, while his most popular designs sell out in a matter of days.

During his time at the company he has led Burberry’s digital push, becoming one of the first to launch a system where customers can buy collections straight from the catwalk.

He also benefits from the fact he is still held in huge regard by investors for his work alongside former CEOs Ahrendts and her predecessor Rose Marie Bravo in building the company.

“He does defer to his CFO on detailed technical matters but that seems entirely appropriate to us. Building a great brand is much more important than managing the City, in our opinion,” one of the company’s largest long-term investors told Reuters, on the condition of anonymity.

In the four and a half years that he solely held the chief creative officer role he won multiple industry awards and the share price rose almost 200 percent.

“If you go back a couple of decades, it was a tired old raincoat brand and they have turned it into something very different and an awful lot more attractive and profitable,” said Liberum’s Gadsby.

Supporters within the firm say the success of its multi-colored poncho shows how Bailey combines his creative abilities with a commercial outlook; relaunching an out-of-favor item to great effect.

Those who have worked with Bailey say he is known for his love of teamwork, choosing to encourage collaboration and discussion amongst his team members on strategic decisions.

“He is a clear leader but never authoritative, he loves to listen and also to have a collegial decision,” said Floriane de Saint Pierre, who helped recruit Bailey and has known him for around 20 years.

“However when he has a decision and a conviction he will make sure that his team agrees.”